Lies My Parents Told Me - S7-E17
Revealing mistake: When Spike tells his mother that he's become a vampire, she asks him if he's drunk. He responds with "Little bit." Just after he says this, someone can be heard coughing off-camera. It could be his mother because she isn't supposed to be well, but it seems odd that the camera wouldn't be on her during this. And a cough wouldn't really be necessary for the scene.
Chosen answer: Angel is saying that he is still jealous and Buffy recognizes that this is his way of saying he wishes that they could be together. That is why they both smile.